Long-term Retail Mutual Fund Flows Jump $61B In September: Citi

Citi analysts William R Katz, Neil Stratton and Steven J Fullerton dissect U.S. mutual fund flows in September in their research work “September U.S. MF Trends: Flows Recover But Usual Suspects Standout” of October 14, 2013.

Long-term Retail Mutual Fund Flows Jump $61B In September: Citi

Here are key insights from the report.

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More

Retail interest high despite politics

Retail inflows were $78B in September comprising $34B in long-term inflows and $43B in money market flows. On an MTM basis long-term flows jumped $61B of which $32B accrued to Equities and $28B to Fixed Income. This was creditable given the volatile markets and the uncertainty in Washington due to the shutdown and debt ceiling.

Long-term fund lows (U.S. industry as a whole) higher

Net long-term inflows grew 3.5% on an annualized basis to $34B in the month. This comprised $39B (+6%) in Equity flows and $5B (-2%) in Fixed Income.  This was a significant improvement over August, which printed net outflows of $26B (-3% annualized). It is interesting that within Equity, International flows of  $7B grew 11%, much higher than Domestic flows of $15B (+3%).

Investors partial to passively managed funds

There was a decided preference for passive funds compared to active funds as seen from the table below:

Long-term Active ($B) Annualized Growth Passive ($B) Annualized Growth
Equity +9 +2% +30 +15%
Fixed Income -13 -5% +8 +19%
Net total -4 -1% +38 +16%

Fund Flows amongst key players – Equities

Equity Gainers Losers
WisdomTree Investments, Inc.(NASDAQ:WETF) +29%
BlackRock, Inc.(NYSE:BLK) +20%
Affiliated Managers Group, Inc.(NYSE:AMG) +17%
Invesco Ltd.(NYSE:IVZ) +17%
Janus Capital Group Inc(NYSE:JNS) +10% -19%
Eaton Vance Corp(NYSE:EV) -6%

Citi: “Flows continue to generally accrue to a select number of players, leaving individual company dynamics mixed for much of our coverage.”

Fund flows amongst key players – Fixed Income

Affiliated Managers Group, Inc. (NYSE:AMG), BlackRock, Inc. (NYSE:BLK), Waddell & Reed Financial, Inc. (NYSE:WDR), Invesco Ltd. (NYSE:IVZ) and Eaton Vance Corp (NYSE:EV) were the winners. Big losers were Ameriprise Financial, Inc. (NYSE:AMP) at -16% annualized, and Federated Investors Inc (NYSE:FII) at -12% annualized.

Citi’s sector picks

Citi’s key pick amongst Traditional asset managers is Invesco Ltd.(NYSE:IVZ), the rationale being the benefits that could accrue due to a continued liberal Fed stance. The Blackstone Group L.P.(NYSE:BX) is favored by Citi in the Alternative asset management space. LPL Financial Holdings Inc (NASDAQ:LPLA) looks promising in the Broker/Dealer Sector.